Research Center

The downward momentum of interest rates in the money market became weak when better-than-expected U.S. economic indicators partly caused USDVND to increase notably. Although SBV kept withdrawing liquidity from the banking system with a significant T-bill offering, the winning rate increased in the Friday trading session. Furthermore, G-bond yield in the secondary market rose for the first week of 2023, indicating that fixed-income investors were more cautious than last week.

The money market this week shows us a soft liquidity condition attributable to lower demand for borrowing in the manufacturing and real estate sectors in the first months of 2023. Interest rates dropped notably, especially for short tenors, when SBV offered more T-bill contracts with a reduced winning rate. In addition, the G-bond yield recorded one more week of reduction likely due to the principle of an alternative channel to lending activity. SBV seems to pilot a reduction in funding costs for the money market in its attempt to lower the interest burden for local enterprises. However, a lower overnight rate resulted in a negative spread in interest rates between the local currency and USD, putting more pressure on the stability of foreign exchange in the coming weeks. Therefore, the development of the FX market will hint us SBVs’ stance in the near future.

This week shows a stable money market after Tet characterized by extending liquidity support from the central bank. SBV continues to provide more money for its counterparties by offering more repo and fewer T-bill contracts. The G-bond market attracted fixed-income investors in the first week of this year when yields dropped significantly in both primary and secondary markets. As per FX development, USDVND remained low after Fed delivered an expected 25bps. However, we predict USDVND to rebound in the coming weeks when remittance inflows will become limited after Tet.

SBV enhances its liquidity support via repo and T-bill instruments to ensure a stable money market heading to a long traditional Tet. Interbank rates, therefore, spot nearly to the 6% level of the interest rate corridor. Interbank USDVND continued to posit around the buying price of SBV, while the central bank did not provide any new adjustment, implying that SBV could restore the FX reserve further. As per future development, the money market would remain stable despite a long traditional Tet due to SBV’s liquidity injection. However, Fed will provide more rate hikes soon in February FOMC, reducing the interest rate spread between the dong and USD. Hence, we predict that USDVND could rebound in the coming weeks.

SBV this week calibrates OMO transactions to ensure stable liquidity conditions heading into Tet by offering less T-bill and more repo contracts than last week. However, the central bank persists in keeping the funding costs in the money market at a high level to secure the attractiveness of the dong relative to the U.S. dollar. Besides, USDVND has broken down the SBV’s buying price this week, suggesting that the monetary authority could already buy the greenback from its counterparties under the demand of restoring the FX reserve. Overall, we saw a resilient money market due to the resolution of liquidity hovering and a less hawkish Fed.

The interbank returned stable after facing surging demand for liquidity last week. The interest rate for overnight loans rose slightly while others for longer-term loans with abnormally high trading volume last week, such as one-week and two-week, have reduced. Besides, SBV turned to provide money for its counterparties in the first trading week of the year with a persistently high funding cost to persist the positive spread in interest rate between the dong and USD interbank loans, partly contributing to the stability of the exchange rate. Looking forward, we expect interest rates in the money market to increase due to the demand for cash during the Tet season.

The money market participants kept staying calm this week when the liquidity condition remained ample. However, the fluctuation in the interbank market increased notably when the central bank issued more T-bills to respond to the interest rate slide. Besides, the 3-day New Year holiday added more pressure to surge the overnight rate in the last trading date of the year. SBV’s OMO implementation this week likely indicates that Vietnam’s monetary authority tends to lift the interbank rate to stabilize the exchange rate as its top priority. Hence, we expect SBV to sustain the spread between the effective fed fund rate and VNIBOR at a premium, raising funding costs in the money market next week.

The money market keeps stable this week as the overnight interbank rate dropped below 4.00% at the weekend. In response to this drop, the central bank issued T-bill contracts as a lower bound of the interest rate corridor to raise the short-term funding cost in the banking system. In the forex market, the dong appreciated further with a slight increase when catalysts for the DXY uptrend were increasingly limited.

Vietnam’s money market remained stable after Fed released its rate decision with an anticipated increase of 50bps. Interbank rates reduced notably with an unchanged volume compared to the last week, indicating that borrowers gained more bargaining power when the central bank persistently managed OMO transactions at 6.00%. The dong witnessed another appreciation this week, although Fed delivered a 50bps increase in its monetary policy rate, implying that the supply side was expanding.